Everything You Need to Consider About the Advance Child Tax Credit Payments

Jul 16, 2021

As we are heading into the second half of 2021, individuals are now starting to receive their advance Child Tax Credits payments as a result of President Biden’s American Rescue Plan. The law, signed in March, increases the overall child tax credit, expands it to include children turning 17 this year, and adds another annual $600 benefit per child under six years old. While the advance payment on the credit may be a welcomed windfall, there are some important aspects of this tax credit individuals should be aware of when receiving these payments.

Receiving Payments
Individuals with dependent children started receiving monthly payments on July 15th which are estimated to total half of the amount of their estimated 2021 Child Tax Credit. The other half of the Child Tax Credit will be received when the 2021 Tax Return is filed in 2022. Individuals are required to reconcile the payments received on their 2021 Tax Return so they should keep track of the payments received throughout the year and include that information with their tax documents.

Overpayment
If an individual receives more than what is due to them, they will be required to pay back the difference. This differs from the stimulus payments, where individuals were allowed to keep the additional funds. This primarily applies to those with a dramatic increase in income during 2021. An example of this scenario:

  • If your income level qualified you to receive additional Child Tax Credits in 2020, and your new income level in 2021 does not, you will have to pay back the money received in regards to the additional Child Tax Credit you no longer qualify for.

Increase in Tax Due
The advance child tax credit received will be in lieu of claiming the tax credit on the 2021 income tax return. Since half of this credit will be received by the time the 2021 income tax return will be due, the amount of the child tax credit will be halved on the 2021 Return. This means that there will be fewer credits to offset against the tax due, which may cause a higher-than-normal tax due, or decrease the potential refund some are used to receiving. This holds especially true for those with a dramatic increase in income for 2021.

Opting Out of Advanced Payments
If taxpayers do not wish to receive the advanced payments of the Child Tax Credit, they can elect out of them. Typical reasons for opting out of the advanced payment are as follows:

  • An individual normally has a balance due to the IRS after filing their taxes
  • An individual doesn’t claim a dependent every year due to shared custody arrangements
  • An individual’s dependent(s) is(are) aging out of the range of the credit
  • An individual prefers having a large tax refund

Anyone wishing to elect out of the advanced payments, you may do so by clicking this link and following the instructions provided.

Changing Bank Account Information
If taxpayers would like to learn how to change/update their banking or direct deposit information, click here.

New IRS Portal
The IRS is currently developing a portal in which a user can enter updated information impacting the amount of payment an individual will receive. A user can do all of the following in this portal:

  • Update marital status
  • Enter in children born in 2021
  • Re-enrollment into the Child Tax Credit if you were previously unenrolled
  • Adjust your income for the calculation of the Child Tax Credit

As previously stated, this portal is still in development but the IRS is looking to release this portal in the coming months. Reach out to your WVC professional for questions on your specific situation.

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Categories: Tax Planning


IRS Tax Filing Deadline Moved to May 17

Mar 18, 2021

Yesterday, the U.S. Internal Revenue Service (IRS) extended the federal income tax filing due date for individuals for the 2020 tax year to Monday, May 17, 2021. “This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities,” said IRS Commissioner Chuck Rettig.” While the deadline has been extended, there are some items worth noting:

  • The delay applies to individuals filing Forms 1040 and 1040-SR.
  • The postponement does NOT apply to first-quarter estimated tax payments for 2021. The deadline for such remains April 15. After that date, interest and penalties on unpaid amounts will apply.
  • The extension also does NOT include fiduciary (trust) income tax return
  • It does NOT change the deadlines for corporate, partnership, or nonprofit tax returns.
  • The deadline to file the 2020 tax return remains Oct. 15 for taxpayers who file Form 4868 to request an automatic extension. The deadline to submit this form is now May 17, not April 15.
  • Recent law changes allow an exemption of up to $10,200 of unemployment compensation. If you received unemployment compensation last year and already have filed your 2020 tax return, the IRS strongly urges you not to file an amended return from federal tax but the IRS hasn’t announced what steps to take but plans to do so soon. For those who haven’t yet filed their 2020 returns, the IRS released guidance on March 16 that includes a worksheet and instructions to claim the exemption

Some state agencies have followed suit in extending the deadline.  We expect more states to push back their tax filing deadlines but recommend each taxpayer check with their state agency for any state tax deadline extensions.

Finally, while the deadline has been extended, we highly recommend taxpayers get their documents to their CPA and file as soon as possible, especially those who are owed refunds. Filing electronically with direct deposit is the quickest way to get refunds, and it can help some taxpayers more quickly receive any remaining stimulus payments they may be entitled to. If you have any questions, please reach out to your William Vaughan Company advisor at 419.891.1040 or check out the IRS news release here.

Categories: Tax Compliance, Tax Planning


Small Business Audits to Increase by 50% in 2021

Jan 26, 2021

As many small businesses are already preparing for complex accounting issues as a result of COVID-19 relief funds from the 2020 CARES Act, the IRS announced their intent to increase audits by 50%.

These audits and their repercussions could be targeted at businesses that have historically been overlooked including family-owned operations, online businesses created as a result of the pandemic, and investment funds.

De Lon Harris, the IRS deputy commissioner of examination for small businesses, recently noted, “[we] are focusing our efforts to increase compliance activity in this area of not only partnerships but also investor returns related to pass-throughs.”

The IRS can audit returns up to 3 years old, and if significant problems are found, are able to look further into past filings. With new audit procedures passed by Congress in 2015, the IRS is able to collect any underpaid taxes directly from the partnership instead of tracking down each investor. The agency is placing 50 new specialized auditors on these cases beginning in February in order to meet the projected increase.

Here are a few tips to prepare you and your business for the possibility of an audit:

  • Maintain clear records – Accurate and adequate documentation makes an auditor’s job easier and may reduce the chance of further inquiry.
  • Make estimated tax payments – Businesses expecting to owe more than $500 should be making quarterly payments. Failure to do so can increase your chance of being audited.
  • Impact of the Bipartisan Budget Act of 2015 (BBA) – Review of businesses’ formation documents, elections, and governing documents will help to determine if you will be subject to the Centralized Partnership Audit Regime and how it will impact your business.
  • Enlist the experts – Seek guidance from a CPA to ensure your returns are filed timely and accurately, to help you determine if estimated payments are needed, and to resolve possible red flags due to questionable reporting.

Should you have questions about your specific situation, please contact your William Vaughan Company advisor or reach out to our contributor, Juli Seiwert in our firm’s audit department.

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Juli Seiwert, CPA
Audit Senior Manager, William Vaughan Company
juli.seiwert@wvco.com | 419.891.1040

Categories: Audit & Accounting, COVID-19


Americans Begin to Receive Second Round of COVID-19 Stimulus Checks

Dec 30, 2020

Tuesday afternoon, U.S Treasury Secretary Steven Mnuchin took to social media announcing the disbursement timeline for the second round of stimulus checks. He noted the following:

  • Direct Deposit – Individuals who have direct deposit set up with the IRS can start looking for their second stimulus payments as early as last evening (12/29) and continue into next week.
  • Paper Checks – The IRS will begin sending out paper checks today, Wednesday (12/30/20), which means people should begin receiving those checks within the next two weeks.*
  • Status of Payment – Mnuchin also stated later this week, you can check the status of your payment here

*To speed up delivery, a limited number of people will receive their second stimulus payment by debit card. But the form of payment for your second stimulus check may be different than your first payment. Some people who received a paper check last time might receive a debit card this time, and some people who received a debit card last time could receive a paper check. The pre-paid cards will come in white envelopes that “prominently displays the U.S. Department of the Treasury seal,” the IRS said. The card will bear the Visa name on the front and the name of the issuing bank, MetaBank, will be on the card’s back. The information included with the card will explain that this is your Economic Impact Payment. There’s more information on the pre-paid cards here.

While Congress remains in discussion about an increase to a $2,000 stimulus amount, what we know for now is:

  • As it currently stands, the checks will be for $600 for eligible adults, and $600 per dependent, meaning a family of four could receive $2,400.
  • Individuals who earned less than $75,000 and those married filing jointly who earned less than $150,000 in 2019 are eligible for the full amount.
  • Those who made more are eligible for reduced stimulus checks at a rate of $5 per $100 of additional income.
  • The checks phase out completely for individuals that earned $87,000 and couples that made $174,000 in 2019.

If you have questions regarding your stimulus check, please contact your William Vaughan Company advisor or contact us at 419.891.1040. We’d be happy to help!

Categories: COVID-19


New Guidance Released on Deductibility of Expenses Paid with PPP Funds

Nov 19, 2020

Yesterday, the U.S. Treasury Department and Internal Revenue Service (IRS) released guidance clarifying the deductibility of expenses paid with paycheck protection program (PPP) loan funds.

The two significant rulings can be found here: Revenue Ruling 2020-27 and Revenue Procedure 2020-51. Both address issues related to the deductibility of expenses paid with PPP funds.

What is the significance of the new guidance?
Previously, it was unclear what would happen if a taxpayer incurred the expenses in one year (2020), but received forgiveness in the next year (2021).

Rev. Rul. 2020-27 states if a business reasonably believes a PPP loan will be forgiven in the future, expenses related to the loan are not deductible, whether the business has filed for forgiveness or not. Meaning, if you used all of your PPP funds in 2020 and expect to receive full forgiveness, those expenses are not deductible, regardless of whether or not you have applied for or have received forgiveness notification as of the end of 2020.

What happens if loan forgiveness is partially or fully denied in 2021 after one has filed their 2020 return?
Revenue Procedure 2020-51 establishes a safe harbor for taxpayers whose loan forgiveness applications are partially or fully denied, or who decide not to apply for forgiveness after filing their 2020 tax return.

While these expenses may ultimately become deductible with a future act of Congress, we encourage you to connect with your William Vaughan Company advisor to assist you in determining the best path forward for you and your business.

Need further PPP guidance? Check out our COVID-19 Resource Center.

Categories: COVID-19, Other Resources, Tax Planning